Facebook’s New Business Model
The free market encourages companies to get big by building a better product: give consumers what they need and watch the profits roll in. Unfortunately, some companies get big and then spend their time trying to use power and influence to crush competitors instead of creating new and innovative products to sell to consumers.
In Aladdin, Jafar calls this The Golden Rule – “whoever has the gold makes the rules.” The more precise, modern term is “crony capitalism,” and Silicon Valley’s disruptive technology and business model was supposed to prevent it.
Think of the decades when AT&T dominated phone service. Ma Bell enjoyed a government-enforced monopoly, and there was no innovation in that space. The phone (there was only one per home) just sat there, and you had to be in a particular place to take a call. The high-tech industry changed all that. Now, AT&T sells cell phones. You have a magic rectangle in your pocket that can do so many things that many people don’t even call them phones anymore.
But it isn’t just the phone service that is innovative, however. There is also an explosion of innovation around the apps and social media that run on the phone. This is where crony capitalism comes back into play.
Just as the phone company once tried to prevent others from breaking up its monopoly, today’s big social media companies don’t want to allow competition in their space, either. They are trying to use the power of the federal government to shut that competition down.
For example, three years ago The Washington Post discovered that, “Facebook is working behind the scenes to help launch a new political advocacy group that would combat U.S. lawmakers and regulators trying to rein in the tech industry, escalating Silicon Valley’s war with Washington at a moment when government officials are threatening to break up large companies.”
But the group, called the American Edge Project, didn’t stick to simply defending the tech industry. It is also attempting to undermine Facebook’s social media competitors. For example, the Project’s Doug Kelly last year wrote a blog post accusing Facebook’s competitor TikTok of harvesting American’s user data.
Well, data security is always a concern, as anyone who has been hacked can attest. But Facebook doesn’t have a strong record on data security. This, after all, is the same company that faced a $5 billion fine for mishandling user data. Doug Kelly’s piece doesn’t read like something aimed at protecting the tech industry as a whole. It seems more aimed at encouraging policymakers to crack down on a successful competitor. Perhaps that is because TikTok is currently eating Facebook’s breakfast, lunch, and dinner.
The fact is that young people today just don’t find Facebook all that relevant. “I think since it is so catered to you, that’s what drew me into TikTok,” a high school junior from Nevada tells a Slate podcaster. “I never really experienced the same type of feeling when I was using Instagram or Snapchat.”
The numbers bear this out. “Some 67% of teens say they ever use TikTok, with 16% of all teens saying they use it almost constantly,” the Pew Research Center reported last year. “Meanwhile, the share of teens who say they use Facebook, a dominant social media platform among teens in the Center’s 2014-15 survey, has plummeted from 71% then to 32% today.
Here is an idea: maybe Facebook could win back users by providing a better product. That is what capitalism in general, and Silicon Valley in particular, is supposed to be all about. Facebook should stick to innovation rather than turning to legislation to attack competitors. If they can’t figure that out, they may need to start looking for magic lamps.
